Managing Risk in Construction

In the world of construction, much like many businesses, risk is part of the job. According to a new report, Managing Risk in the Construction Industry, from Dodge Data & Analytics, three quarters of business owners and contractors have experienced a dispute or claim in the last three years, while nine in 10 say increased collaboration can be used to mitigate future risk.

The 60-plus page report looks at the types of risk that commonly plague construction businesses and sites, including owners, general contractors and subcontractors, and points out practical ways to mitigate them. This includes traditional risks such as claims and disputes, and non-traditional risks like cybersecurity, subcontractor defaults and violence in the workplace.

The report says there’s a unique link between specific risk reduction practices-such as conducting regular meetings with the full project team, formal brainstorming and developing a plan to manage risk-and tangible project benefits, such as reduced construction cost, improved project schedule and improved safety. a key finding is that collaboration is widely recognized as beneficial in an industry still plagued by silos and competition within teams.

Steve Jones, senior director of industry insights research at Dodge Data & Analytics, said the study contributes to the growing body of knowledge about the positive impacts of project collaboration and early collaboration by team members can lead directly to less project risk and crisis-a significant incentive to start working together better, more often.

Karen Walsh, senior vice president and regional director of Alliant Insurance Services Inc., said the concept of collaboration and integration is not new and has been around for decades. “The difference today is with the preponderance of large scale mega projects, this becomes a new reality with much higher stakes for all sides,” she added. “Regardless of the disposition, each party’s risk concentration is exacerbated. Couple this with the emerging and still unknown complications of technological, political and workplace violence risks, and you have a situation that forces the concept for change for all parties.”

Three types of industry players were surveyed for the report-building owners, general contractors and trade contractors. Of the three, general contractors have experienced the highest level of claims or disputes in the last five years, with subcontractor defaults, terminations and failures being the most frequent and costly issues they face. According to the report, 33 percent of general contractors consider labor procurement and subcontract management to be high risk area, and 81 percent of all respondents found that labor scarcity will increase project risk. On the other hand, building owners are most impacted by claims arising from construction defects, and trade contractors are affected by frequent warranty issues.

To best deal with these risks, the report shows the industry can employ a series of risk evaluation and mitigation strategies, with formal brainstorming being the top evaluation strategy. However, different players see different advantages, with building owners being most enthusiastic about brainstorming to help increase the reliability of overall project performance, general contractors also seeing it as having an impact on improved project schedule and safety. Trade contractors, say it is most effective for reducing construction costs.

However, according to the study, the most effective risk evaluation strategies are regular meetings with the full project team focused on risk and the development of a plan to manage risk. Both of which help increase project performance reliability, maintain project quality and improve project safety.

Do you agree? George Hedley talks about it regularly in his monthly columns, how holding meetings with your team can help reduce errors on the jobsite, speed up construction and create value in the company. How has brainstorming and regular meetings with your staff helped your business?

The report, which was produced in partnership with Alliant and support from e-Builder and Procore, is available for free download here.